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Seaborne Iron Ore Trade Not Enough to Save Dry Bulk Companies

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Dec. 4 2020, Updated 10:52 a.m. ET

Iron ore shipments

Dry bulk shipping companies transport iron ore more than any other commodity. So it’s very important for investors to watch the shipments from Australia and Brazil, the world’s largest iron ore exporters.

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Port Hedland iron ore shipments rebound

BHP Billiton (BHP) (BBL) and Fortescue Metal (FSUGY) ship from Port Hedland in Western Australia. Iron ore shipments through Port Hedland rose 3% month-over-month (or MoM) to 37.3 million tons in November, compared to 36.5 million tons in October.

While the demand for steel is faltering in China, iron ore majors are running at full capacity to drive out marginal players and capture market share in a weak market. Gina Rinehart’s Roy Hill also shipped its first iron ore shipment in December after several delays. This additional ore should keep iron ore shipments for Australia buoyant at least for some time to come.

Brazil’s iron ore exports

Brazil accounts for about 25% of the global market share of iron ore’s trade volume. Vale SA (VALE) is the major iron ore producer in Brazil. Brazil’s iron ore shipments in November came in at 28.1 million tons, which is a decline of 18% MoM and a 7.9% gain year-over-year.

The outlook for shipments from Brazil remains strong. Iron ore majors are staying on track for expansion. However, Chinese buyers are expected to order lower volumes going forward, as inventories remain strong. We’ll analyze this in more detail in the next part of the series. Meanwhile, freight rates for Capesize and Panamax, which carry iron ore, could remain under pressure.

This should be negative for shipping companies such as DryShips (DRYS), Diana Shipping (DSX), Ship Finance International (SFL), Navios Maritime Partners (NMM), and Scorpio Bulkers (SALT). It should also be negative for the Guggenheim Shipping ETF (SEA). Navios Holdings accounts for 2.2% of SEA’s holdings. The SPDR S&P Global Natural Resources ETF (GNR) tracks the Natural Resources Index. BHP forms 5.0% of its holdings.

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